Bank of Canada Pauses Rate Hikes

As was forecasted by economists, Bank of Canada Governor Tiff Macklem decided to keep the overnight borrowing rate unchanged at 5%, following data suggesting high interest costs are finally making their way through the economy and delivering stagnant GDP figures.

Macklem pointed to signs of an alarming second quarter slowdown in China’s economic growth, with inflation across advanced economies showing signs of easing. Likewise, Canada’s economy, too, has abruptly decelerated, thanks to slowing consumption growth and housing activity, as well as negative impacts stemming from this season’s rampant wildfires.

Still, policy makers pointed to broad-based inflationary pressures that are persist throughout the economy, namely a recent increase in gasoline prices. “Year-over-year and three-month measures of core inflation are now both running at about 3.5%, indicating there has been little recent downward momentum in underlying inflation,” reads the bank’s statement. “The longer high inflation persists, the greater the risk that elevated inflation becomes entrenched, making it more difficult to restore price stability.”

But, despite September’s pause on raising interest rates, the bank continues to raise alarm over underlying inflation, and is thus prepared to hike borrowing costs again depending on incoming economic data. “We will be evaluating whether the evolution of excess demand, inflation expectations, wage growth and corporate pricing behavior are consistent with achieving the 2% inflation target,” policy makers added.

Information for this story was found via the Bank of Canada. The author has no securities or affiliations related to the organizations discussed. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses

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